On the 4th of July 2022, the Prime Minister of Malaysia, Datuk Seri Ismail Sabri Yaakob launched the Malaysia Digital (“MD”) initiative as the new national strategic initiative to accelerate and transform the country’s digital economy. The MD initiative replaces the Multimedia Super Corridor (“MSC”) Malaysia, which was introduced in 1996. The nine key growth sectors that the MD initiative will be focussing on are digital tourism, Islamic digital economy, digital trade, digital agriculture, digital services, digital cities, digital health, digital finance and digital content.
The Government of Malaysia, through the Malaysia Digital Economy Corporation (“MDEC”), grants MD status to eligible companies. Companies that are accorded with MD status will be entitle to a set of incentives, rights and privileges, namely the MD Bill of Guarantees (“BoGs”), subject to the relevant laws and regulations.
With this new and more flexible option of Malaysia Digital status, both foreign direct (FDI) or domestic direct (DDI) investors have a greater flexibility to choose from a set of competitive offerings.
A key change to note is that MD status companies are no longer confined to a designated area or location and companies can choose to operate in any location that suit their needs.
Compared to the previous MSC status, the MD status has an “MTEP program” which has specially designed work permits and employment passes to attract tech startup entrepreneurs, experienced tech entrepreneurs and investors to work or invest in tech industries in Malaysia, ranging from a 1-year pass for new entrepreneurs and a 5-year pass for established entrepreneurs or investors along with their dependents. This is indeed a welcome step to attract much needed human talent in the highly competitive digital industries.
Eligibility
In order to be eligible to apply for the award of MD status, a company must satisfy the following criteria:
- Incorporated under the Companies Act 2016 and resident in Malaysia; and
- Proposing to carry out or is currently carrying out one or more of the MD activities.
The MD activities are research, development and commercialization of solution and/or provision of services in relation to big data analytics, artificial intelligence, financial technology, internet of things, cybersecurity (technology / software / design and support), data centre and cloud, blockchain, creative media technology, sharing economy platform, user interface and user experience, integrated circuit design and embedded software, 3D printing (technology/software/design and support), robotics (technology/software/design), autonomous technologies, systems/network architecture design and support, global business services or knowledge process outsourcing, virtual, augmented and/or extended reality, drone technology, advance telecommunication technology, or other emerging technologies deemed significant for the digital ecosystem subject to the approval by the Approval Committee.
Upon approval of MD status, the activities will be known as “MD Approved Activities”.
Conditions of MD Status Company
A company that has been awarded with MD status will have to comply with the following conditions within 12 months from the date of award of such status:
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Activity | Commencement of operation and undertaking of its MD Approved Activities in Malaysia |
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Knowledge workers | Employ a minimum of two full-time employees (comprising knowledge workers) with minimum average monthly base salary of RM5,000 employed for the MD Approved Activities |
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Operating Expenditure | Incur a minimum annual operating expenditure of RM50,000 incurred for the MD Approved Activities |
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Paid-up Capital | Have a minimum paid-up capital of RM1,000 |
In addition, MD status companies must comply with all applicable permit/licensing requirements and ensure that they have obtained the required permit/licence from the relevant authority for the implementation of their MD Approved Activities. In the event of non-compliance of MD status conditions by an MD status company, the MD status may be revoked. With the revocation of MD status, all incentives and benefits granted under the MD status will also be withdrawn in accordance with the applicable laws and regulations.
Benefits of MD Status Company
The grant of MD status allows eligible companies to enjoy certain incentives, rights and privileges, namely the BoGs and they are as follows:
- BoG 1: To provide a world-class physical and information infrastructure.
- BoG 2: To allow employment of local and foreign knowledge workers.
- BoG 3: To ensure freedom of ownership by exempting companies with MD status from local ownership requirements.
- BoG 4: To give the freedom to source capital globally for MD infrastructure, and the right to borrow funds globally.
- BoG 5: To provide competitive financial incentives, namely income tax exemption or investment tax allowance and no duties on the importation of multimedia equipment.
- BoG 6: To become a regional leader in Intellectual Property Protection and Cyberlaws.
- BoG 7: To ensure no censorship of the Internet.
- BoG 8: To provide globally competitive telecommunications tariffs.
- BoG 9: To tender key MD infrastructure contracts to leading companies willing to use Malaysia as their regional hub.
- BoG 10: To provide a high-powered implementation agency to act as an effective one-stop super shop.
However, these benefits are subject to separate approvals being obtained (if required), applicable eligibility criteria and conditions, and applicable laws and regulations. Unlike the old MSC status, MD status companies are not subjected to minimum office space requirements and are now allowed to operate and undertake MD Approved Activities in any location within Malaysia.
Hence, both existing and new companies that are in the digital sector may wish to consider applying for MD status to enjoy the various incentives offered by the Government of Malaysia whereas it would be an opportune time for companies that have been granted MSC status to review whether they are affected by the changes and to ensure that they are aligned with the latest requirements.
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This article was written by Shawn Ho (Partner) & Tan Wen Min (Associate) from the corporate practice group of Donovan & Ho. Shawn leads the corporate practice group of Donovan & Ho, and has been recognised as a Notable Practitioner, whilst the firm has been recognised as a Notable Firm for Corporate and M&A by Asialaw Profiles 2020 and 2021. We are also ranked as a Recommended Firm by IFLR1000 2020 and 2021.
Our corporate practice group advises on corporate acquisitions, restructuring exercises, joint venture arrangements, shareholder agreements, employee share options and franchise businesses, Malaysia start-up founders and can assist with venture capital funds in Seed, Series A & B funding rounds. Feel free to contact us if you have any queries.
